Frequently asked questions on what happens on Oct. 17 if Congress doesn’t lift the debt ceiling

The clock is clicking toward the Oct. 17 deadline at which point the Treasury Department says the debt ceiling will be reached. Here’s a few answers to frequently asked questions.

Q: Will that mean the U.S. has defaulted?

Getty Images

Treasury Secretary Jack Lew

A: No, with a few asterisks attached. The Treasury won’t be able to borrow any longer. However, the U.S. Treasury will still have some money — probably on the order of $20 billion to $30 billion. So the government will still have money to pay incoming bills.

That is, of course, if investors continue to roll over their debt and don’t panic and cash out. The U.S. Treasury will roll over at least $302 billion in outstanding federal debt between October 15 and October 31, the Bipartisan Policy Center estimates.

There are two different definitions on default, to make matters more confusing. The White House, as articulated in recent testimony by Treasury Secretary Jack Lew, is of the view that any non-payment of an obligation — whether that’s interest on a Treasury bill or a Social Security payment — is default. Many Republicans argue that only non-payment on debt constitutes default.

Another point, made here in a nice column by Felix Salmon of Reuters, is that the U.S. already has defaulted — by not paying government workers the money they’re contractually agreed to pay. But that’s not a widely shared interpretation.

Q: How long will that cash last?

A: Again, it’s impossible to pin down. Much depends on how the economy performs, and whether those individual and business withholding taxes are still coming in at a normal rate.

Attention is being put on Oct. 31, when the U.S. needs $6 billion to make a coupon payment. Some financial analysts think the U.S. may be able to make that payment even without the debt ceiling increased. Much depends on whether the broader economy comes to a standstill or not.

The Bipartisan Policy Center says by Nov. 1, that’s it — the Treasury is broke and will default on something. The next interest payment after Oct. 31 is Nov. 15, when the Treasury will have to pay $29 billion.

Q: How will markets react?

A: You can’t be sure. Already, big names like Fidelity Investments, J.P. Morgan and Citigroup are avoiding short-term debt. Interest rates on the short end have climbed. So, the market disruptions that people feared are already happening.

So the question really turns to how bad will it get. And the answer may well be, not too bad — if markets are convinced the disruption will be short.

And if it does get bad? Memories will return to 2008, shortly after Lehman Brothers went bust. The Treasury Department warns this time could be even worse.